Wednesday, July 10, 2013

People Who Haven't Filed a Tax Return to Get Unverified Health Insurance Exchange Subsidies

The head of the Centers for Medicare and Medicaid, Marilyn Tavenner, is out with a "Myths vs. Fact" clarification memo regarding the waiver of the employer mandate and whether the new health insurance exchanges will verify people's incomes when calculating subsidies.

I noted a couple of things in her memo.

Her memo indicates that the exchanges will request additional income information from a "random sampling" of people when, among other things, "an individual does not have a tax return on file and attests to an income significantly below current wage data."

Federal law required every individual, for example, with income above $9,750 to file a tax return for 2012. The health insurance exchanges are available to everyone making more than 100% of the poverty level ($11,500 for an individual) in states that have not taken the Medicaid expansion and 138% of the poverty level for those states that have.

So, given that the exchange threshold is above the threshold for filing a tax return, virtually every person eligible for a subsidy in the exchanges would have had to file a tax return prior to applying for benefits.

Tavenner makes it clear "the IRS will reconcile advance payments of the premium tax credit when consumers file their annual tax returns at the end of the year, and it will recoup overpayments and provide refunds when they occur."

That begs a question.

What happens if this person also doesn't file a tax return for 2014? Just how will the government recover any incorrect subsidy? Will the exchange keep a person who does not file a return on the exchange rolls in 2015? Will the exchange purge their rolls of anyone getting a subsidy that has not filed a tax return as of April 15, 2015?

Why should we expect people who haven't been filing a return to start now? It has been estimated that as many as 15 million people do not file a tax return.

Tavenner also asserted that:

"No matter which type of Marketplace is operating in a state, the Marketplace will always check the income information submitted by individuals against electronic income data sources such as tax filings, Social Security data, and current wage information. In most circumstances, we will request additional documentation from all affected individuals, such as when an individual does not have a tax return on file and attests to an income significantly below current wage data.

"We will request additional documentation from a random sampling of individuals only in the specific circumstance when:

"Current income information is not available;

"There is a significant discrepancy between the income reported on an available tax return and the income provided by the individual; and

"The individual cannot provide an acceptable explanation for this discrepancy."

So, if your submitted information matches the information on record, or you have a plausible explanation for why it doesn't, the government is happy but if your income representations don't match anything they have on record or you "cannot provide an acceptable explanation"––including those who don't have a tax return on file––they are only going to check that small statistically valid sample?

What am I missing here? Of course they don't have to check if the information matches.

What everybody is trying to figure out is why the administration has suddenly said they aren't going to check the vast majority of applicants where the information doesn't match and the applicant can't explain it?

Tavenner said in her "Myth vs. Fact" memo that "there have been some mischaracterizations of these regulations," and "she suggested we needed to do a reality check on some of the myths that have been circulating."

I will suggest the most important thing the administration could do toward making people understand what's going on here is to tell us exactly why they aren't going to make an attempt to verify every applicant's representation that doesn't make sense.

And, since they are putting so much faith in the IRS correcting any subsidy problems later when people file their tax returns, they can also tell us what they are going to do about giving people benefits that don't have a history of filing tax returns.

Up until I read her "clarification" memo, I was actually more worried about people getting incorrect subsidies due to the poor verification policies and having a big tax surprise when they filed their returns. For example, a family of four getting a subsidy based upon earning 200% of poverty but actually earning income at 250% of poverty would have a $1,700 subsidy overpayment due the feds.

Washington Post's Wonkblog "Pundit of the Year"

Bob Laszewski was named the Washington Post's Wonkblog "Pundit of the Year" for 2013 for "one of the most accurate and public accounts" detailing the first few months of the Obamacare rollout.

"Top 5 Speaker on Health Care"

Bob Laszewski has been named a "Top 5 Speaker" on health care in a survey involving 13,000 business leaders, educators, association members, and others.

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The purpose of thishealth care blogis to provide an ongoing review ofhealth care policy activity in Washington, DC and the marketplace.

Health Policy and Strategy Associates, LLC (HPSA) is a Washington, DC based firm that specializes in keeping its clients abreast of the health policydebate in the nation's capital as well as developments inthe health care marketplace.

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Robert Laszewski, Washington, DC

Robert Laszewski is president of Health Policy and Strategy Associates, LLC (HPSA), a policy and marketplace consulting firm specializing in assisting its clients through the significant health policy and market change afoot.
Before forming HPSA in 1992, Mr. Laszewski was chief operating officer for a health and group benefits insurer.
The majority of Mr. Laszewski’s time is spent being directly involved in the marketplace as it comes to grips with the health care cost and quality challenge.